We follow strict guidelines to ensure that the portfolio risk is maintained within specified levels and deliver a superior risk adjusted returns to our investors.
We combine top-down and bottom-up approaches in our Investment process. At a top-down level we consider the macroeconomic themes and look to identify potential macroeconomic risks or industry-specific issues which could adversely affect returns. The top-down approach is used for determining the overall assumptions on industry specific matters. However, we believe the company specific fundamentals are the key to alpha generation over long investment horizon thus focus on bottom-up fundamental research.
Our approach is in-between the traditional growth and value styles – where we look for undervalued companies that operate differentiated business models with the potential for stable earnings growth in varying market conditions. However, we have bias towards Growth believing that earnings and free cash flow growth is the key long-term driver of stock performance. We believe in growth companies with proven business model with growth potential that is under-estimated by the market
We follow BMV (Business, Management & Valuation) approach in our fundamental research, where Business takes precedence over Management and Management takes precedence over Valuation. Irrespective of valuation, we will stay away from businesses where we have structurally negative view / lack of proper understanding of business or discomfort with the management and/or corporate governance practices.
We seek to invest in companies that in our view have sustainability of business growth and are trading at a substantial discount to their true (intrinsic) value. Post our fundamental research process we will have a clear Price Targets to Buy / Sell. The Buy Price factors in a return expectation which is at a substantial premium to the cost of equity over the holding period of investment. We exit from an investment if the price overshoots Target Exit Price by a large margin, even if it happens very early in the Investment horizon. Though we will have Buy-and-Hold strategy, we will not refrain from booking super-normal returns if they imply unrealistic expectations from the company.
We do not over-diversify the portfolio in order to track the benchmark returns. Over diversifications not just compromises potential returns, it also eats into the portfolio manger’s time. We will target a portfolio of around 15 stocks with a range of 12-18 stocks. We will endeavor to ensure that no single investment will have portfolio weight of more than 20%. Similarly, no single investment will generally have portfolio weight of less than 2%.
| Percentage of Portfolio Value | Minimum | Maximum |
|---|---|---|
| Equity | 65% | 100% |
| Cash and/or liquid funds | 35% | 0% |